Financial Accounting – American Eagle Outfitters Inc.

 Financial Accounting – American Eagle Outfitters Inc.

American Eagle Outfitters Inc. (AEO) is a well-established company that retails apparel and related products, mainly consisting of trendy apparel for youth. AEO was established in 1977 with its office in the USA; through the past decades, it has grown and developed its hub as well as its stock. The company has several outlets; one more famous is the American Eagle, while the Aerie brand concentrates more on lingerie and sleepwear. Building on these factors, AEO appears to be a successful organization through adaptation to consumers’ change in preference, appeals to its innovative marketing strategies, and the vigorous advancement of the internet (American et al., 2020). However, the company has some threats, such as a high level of competition, supply chain disruption, and corporate sustainability (Kimmel et al., 2020). This report examines AEO’s positioning in the industry, the competition that the company faces, the history of AEO, its accounting policies, and finally, the factors that pose challenges in the achievement of these strategic objectives for the sustenance of the growth and market position of the company.

Industry and Business Structure

Industry

AEO is in the apparel retail industry, which consists of companies that design, manufacture, and retail apparel, accessories, and footwear. This industry type is also considered volatile because the product is based on fashion trends that change frequently. Specialty retail is a highly saturated market, specifically casual wear for the youth, where AEO is incredibly active (American et al., 2020). The line of products it sells targets people in the young segment of the population, primarily focusing on fashionable and cheap clothes. Leveraging its brand position and being in the retail apparel industry, AEO has to ensure it evolves to meet consumers’ demands effectively.

Competitors

In the highly competitive and quite saturated nature of the retail apparel industry, AEO operates under intense competition from several brands. Abercrombie and Fitch Company, Hollister, Gap, Old Navy and Banana Republic, Urban Outfitters Company, H&M, and Zara by Inditex Company are vital rivals (Scott & O’Brien, 2023). These competitors use physical outlets and virtual shops to sell their products; thus, the competition is all around. All these brands cater to the same audience of young adults and consumers; this explains why branding, fashion, pricing, and customer experience are paramount (Kimmel et al., 2020). Given the target of similar audiences, it is now essential for AEO to come up with unique campaigns and strategies in branding, quality, and communications with consumers.

History of the Company

This clothing apparel company was established in 1977 by the Silberman brothers, Jerry and Mark. At first, the subjects of the company’s creations were outdoor wear clothes and casual wear, inspired by the vision of the founders of the company, who set a goal to produce beautiful, comfortable, and, at the same time, practical clothing (American et al., 2020). Later, through the years, AEO diversified its merchandise offering and spread its stores widely, becoming an important contender in the retail apparel industry (American et al., 2020). A significant event was the company’s IPO in 1994, as it was a relative process that enabled the acquisition of the necessary funds for further expansion. AEO launched the Aerie brand in 2006; the brand operated in the market of lingerie and loungewear for young women (Schroeder et al., 2022). Indeed, this brand has grown to become one of the strategic profit centers of this company. AEO has consistently been receiving and responding to fashion trends and consumers’ desires, which has helped the business keep growing and becoming more successful.

Significant Accounting Policies

AEO financial statements are prepared using the Generally Accepted Accounting Principles – GAAP. The company’s significant accounting policies include several vital aspects. Revenue from sales is recognized at the point of sale for in-store purchases or upon delivery for online sales, ensuring that revenue is recorded accurately and timely (Scott & O’Brien, 2023). Inventories are valued at the lower cost or net realizable value using the weighted average cost method, which helps accurately reflect the value of unsold goods. In compliance with ASC 842, AEO recognizes lease liabilities and corresponding right-of-use assets for its store leases, providing a transparent view of its long-term lease commitments (Herrmann et al., 2019). The company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable, ensuring that asset values are not overstated (Scott & O’Brien, 2023). Additionally, compensation expense for stock options and other equity awards is recognized over the vesting period based on the grant date fair value, aligning employee compensation costs with their service periods.

Milestones

Throughout its history, American Eagle Outfitters has achieved several significant milestones that have shaped its growth trajectory. The company went public in 1994, a crucial step that provided the financial resources needed for expansion. The AEO company introduced the Aerie brand in 2006, and this brand has been a significant source of income for this company in the modern days because it focuses on body positivity and includes all kinds of sizes (American et al., 2020). This was evident by the more aggressive marketing strategy depicted by the introduction of the “Real” campaign in 2011, which aimed to move the company to another level of positioning in the market by identifying itself with body positivity and diversity. AEO entered the international market in 2014 with its stores located in Mexico and the United Kingdom, which has been its pathway to Global Retail (Scott & O’Brien, 2023). The AEO Connected loyalty program was unveiled in 2018 to help boost customer traffic and loyalty and entice customers to return to the firm’s outlets (American et al., 2020). Turning to the specifics of the AEO, it is critical to note that the company has been actively developing its e-commerce segment; this is because the year 2020, marked by the COVID-19 pandemic, became the key to further enhancing its online presence (Scott & O’Brien, 2023). These benchmarks depict that AEO is equipped and has proved that it can pivot in the context of the competitive retail market. It has made it a successful apparel clothing retailing company.

Obstacles and Challenges

However, this company has several challenges that could affect it in the future. Among these challenges is the major one, which is fluctuating demands from customers in the retail apparel market (Kimmel et al., 2020). Fashion is constantly evolving, and it changes rapidly; therefore, to remain competitive and relevant to the target market, AEO needs to make frequent changes to its product line. Hence, competition is even higher today, driven by those old-guard e-commerce companies that continue to evolve and other new-generation online pure-play players (Scott & O’Brien, 2023). AEO must develop an adequate digital environment and promote its online presence to enhance its performance in this segment. Another major threat stems from the global supply chain vulnerabilities that have been affected most, especially by the advent of COVID-19 (Kimmel et al., 2020). This situation tends to influence inventories and costs further. Stable and versatile supply chain management is vital for a system’s functioning. There is a threat of disrupting the economic cycle. AEO’s core business is that economic problems, such as deterioration, can affect consumer spending on non-essential items like apparel (American et al., 2020). While enhancing consumers’ recognition of sustainability and ethical production, AEO needs to appropriately ensure and disclose its actions in these spheres, considering costs and consumers’ expectations.

Conclusion

American Eagle Outfitters operates in the clothing industry, which is highly competitive and constantly developing. This is mainly because it has managed to remain contemporary, introduce novelties, expand prudently, and have a unique brand image. As such, the company’s past, including IPO, Aerie brand launch, and internationalization, suggests that it can evolve. Significant accounting policies of AEO have been explained and elaborated, and its achievements depict its strategic management and flexibility. Nevertheless, several factors threaten the firm’s growth and established position in the market; therefore, the firm needs to address issues like evolving customer preferences, growing e-commerce competition, disruption of supply systems, fluctuating economic conditions, and the requirement to implement environmentally friendly strategies and policies. Thus, with effective management of these threats and optimizing its opportunities, American Eagle Outfitters Inc. can expand upon its history and sustain success in the retail apparel market.

References

American Eagle Outfitters, Inc. (2020). Annual Report. American Eagle Outfitters Investor Relations.

Herrmann, D., Thomas, W., & Spiceland, J. D. (2019). Financial Accounting. McGraw-Hill Education.

Kimmel, P. D., Weygandt, J. J., & Kieso, D. E. (2020). Financial accounting: Tools for business decision making. John Wiley & Sons.

Schroeder, R. G., Clark, M. W., & Cathey, J. M. (2022). Financial accounting theory and analysis: text and cases. John Wiley & Sons.

Scott, W. R., & O’Brien, P. C. (2023). Financial accounting theory. Zhongguo ren min da xue chu ban she.

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Assignment Details

For the next five weeks, you will have a project that will begin in Unit 1, continue throughout all of the units, and end in Unit 5. Your Discussion Boards and Individual Projects will be connected each week, so you must complete your discussion work on time.

The following is a schedule of each week’s deliverables:

Unit #	Topic
Unit 1	Industry and business structure
Unit 2	Current asset analysis
Unit 3	Inventory and long-term asset analysis
Unit 4	Long-term liabilities and equity
Unit 5	Overall company analysis and conclusion

In this Individual Project, you will be analyzing and interpreting American Eagle Outfitters (located in Appendix A: American Eagle Outfitters, Inc., 2020 Annual Report of the required textbook: Financial Accounting), a publicly traded company.

Complete the initial company evaluation (Industry and Business Structure) by answering the following:

• Determine the industry in which the company operates.
• Who are the competitors?
• What is the history of the company?
• What are the company’s significant accounting policies?
• What are the company’s milestones?
• What obstacles or challenges is the company facing?

Deliverable Requirements: Your industry and business structure analysis should have at least 5 pages (the title and reference pages are not counted in these 5 pages) as well and follow the requirements below for using the APA style. Your analysis should include the following:

• • In 5–7 double-spaced paragraphs, introduce and describe the company.
  • Address the questions above, and consider their implications for American Eagle Outfitters, Inc.
  • Do not forget to review the notes to the financial statements for additional information about the company’s background and accounting policies.

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